Mezzanine/Preferred Equity – The New Yield Strategies
Over the last several months, we continue to see a rise in the capital markets pursuant to deploying capital into mezzanine and preferred equity strategies backed by commercial real estate.
The challenge for many funds these days is finding compelling yield on their cash and many investors are more cautious on their outright acquisitions, believing many assets are over-priced. With those two factors in mind, investors are seeing significant advantage by allocating dollars into mezzanine and preferred equity positions alongside external operations.
Why is this happening?
While many investors see risk in acquiring assets as numbers show signs of bubbling in some markets, they find strong returns in mezzanine and preferred equity investments and also have an inside position to take control of properties if the market should experience another downturn.
With construction loans remaining on the conservative side, there are many opportunities to leverage transactions up to 85 and in some scenarios 90% of the transaction costs.
We are seeing mezzanine and preferred equity opportunities not only with value-add, opportunistic re-positioning strategies, but a fair number of new construction and re-capitalization scenarios have a mezzanine or preferred equity component within the capital stack.
Many of the family offices and private equity funds we collaborate with are asking us to aggressive push these mezzanine and preferred equity strategies into the marketplace.